The Question of Commodity Price Volatility at the G20 St.Petersburg Summit

Pascale Massot

Following the issue of energy and commodity price volatility at the G20 in St. Petersburg was not easy. Despite the fact that it was one of the priority areas of the Russian Presidency (Energy Sustainability), little public acknowledgement of the issue was made during the Summit. Russian President Vladimir Putin mentioned energy and commodity price volatility only in passing at his final press conference, and the topic didn’t even make it to the press briefings of either US President Obama or French President Hollande. The G20 communiqué was released on September 6th, and it was clear from its wording that the issue had not been part of leaders’ discussions, since little was added to what had been available prior to the Leaders’ Summit.

The fact that the energy and resource price volatility issue was not front and center at the G20 Leaders’ press conferences does not mean, however, that work wasn’t being accomplished outside of the actual Leaders’ Summit meeting.

The strongest language pertaining to commodity price volatility in the September 2013 communiqué refers to a commitment to strengthen oil market transparency, which includes improving visibility and availability of data, and support for capacity building. This commitment has been advanced through the Joint Organization Data Initiative (JODI – Oil), an international group which emerged in the early 2000s and involves producer and consumer countries as well as international organizations. The communiqué expressed support for the launch in the near future of a new initiative — JODI – Gas.

The St. Petersburg communiqué also accepted the G20 Finance Ministers’ commitment to take action on Price Reporting Agencies as set out in their July 20, 2013 communiqué and welcomed continued work on the subject, as well as further updates at coming meetings. These commitments date back to the Seoul Summit Declaration in 2010, which called for “the IEF [International Energy Forum], IEA [International Energy Agency], OPEC [Organization of Petroleum Exporting Countries], and IOSCO [International Organization of Securities Commissions] to produce a joint report… on how the oil spot market prices are assessed by oil price reporting agencies (“PRAs”) and how this affects the transparency and functioning of oil markets” (G20 Declaration 2011).

The work by the IOSCO on PRAs and, more broadly, on Principles for the Regulation and Supervision of Commodities Derivatives Markets has continued ever since, and has been encouraged by every G20 Finance Ministers and Central Bank Governors meeting, including the most recent one in September 2013.

The reports note that since PRA benchmark prices are used in a wide variety of settings, including in over-the-counter (OTC) contracts, they have an impact not only on physical and derivative commodity markets, but on broader financial markets and the global economy as well. IOSCO is thus encouraged to continue working on issues of accuracy, integrity, and supervision of price formation. Inefficient fossil fuel subsidies are also on the agenda of IOSCO.

Finally, the September 2013 St. Petersburg communiqué noted the work that is being undertaken on other commodity markets, including coal and gas. This is a reference to two reports that have been prepared on the subject by the IEA, IEF, and OPEC. The first report was commissioned by the French Presidency in 2011, and sought recommendations for the G20 Finance Ministers on enhancing gas and coal markets transparency beyond the JODI-Gas database. The G20 Finance Ministers and Central Bank Governors meeting in Mexico in 2012 welcomed the report and asked that the IEA, IEF, and OPEC continue its work and provide practical recommendations by 2013. The 2013 Communiqué notes the two reports, and asks the IEF to come back with a progress report for the next G20 Ministers of Finance and Central Bank Governors meeting in October 2013, essentially delegating assessment and further implementation decision-making to the Finance Ministers level.

The technical nature of these subject areas has an impact on the likelihood of G20 Leaders addressing them in their annual meeting. It is therefore important to remember that much work is being carried out below the Leaders level. What gets prioritized at the Leaders’ Summit tends to reflect the emergency of the moment — this year, the Syrian crisis — and is not necessarily representative of the agenda or the tasking that is addressed by working groups, Bretton Woods institutions such as the IMF, and transgovernmental regulatory organizations such as the FSB (Financial Stability Board), IOSCO, or IAIS (International Association of Insurance Supervisors).

This means that quick assessments on the usefulness or effectiveness of a particular G20 Summit should not be made by focusing exclusively on the G20 Leaders’ Summit, a two day gathering that cannot, by design, tackle everything on the agenda. A more careful assessment should include the continuous work being carried out by international organizations, ministerial meetings, and the work of the personal representatives of leaders – the Sherpa track.

However, a specific presidency does have the power to emphasize certain issues on the agenda and, depending on the intensity of the focus, these issues are likely going to progress more quickly than others. This year, energy and resource volatility wasn’t a prioritized topic, although it was in 2011. At that time, the French presidency made commodity price volatility a particular priority, and it is apparent that this issue was deemphasized by the Mexican and Russian presidencies.

On the face of it, a lack of emphasis on energy and commodity issues is surprising. The Russian Presidency, with its insistence on “inclusive growth” and its BRICS membership, could have adopted a focus on energy volatility and sustainability issues. But Vadim Lukov’s (Ambassador-at-Large of the Ministry of Foreign Affairs of the Russian Federation, Executive Secretary of the Interagency Commission on Russia’s participation in the G8, G20 and BRICS) response to a question presented by the author at his briefing on “BRICS as the Driving Force of the G20,” revealed that BRICS economies had not broached the subject directly. This may be because it is difficult, among the BRICS countries, to come to a consensus on how to approach the issue of commodity prices, as it requires the reconciliation of the priorities of two of the biggest commodities exporters and two of the biggest commodities importers in the world. Incidentally, the final briefing at the St. Petersburg G20 Summit by Yury V. Ushakov, Russian Presidential Aid, on the “Outcome of the BRICS Summit” was cancelled. The Media Note on the informal meeting of BRICS Leaders released later that day made no reference to the subject of energy or commodity prices volatility.

Early signs indicate that the coming Australian Presidency, in 2014, will reemphasize commodity price volatility — particularly from a food security perspective. This should include a focus on agricultural productivity, food availability, as well as commodity price volatility more generally. The Australian Government’s Department of Foreign Affairs and Trade website notes that “Australia has actively participated in the G20 agriculture agenda, focused on agricultural commodity markets and agricultural productivity as part of the global response on food security.”

G20 Leaders’ summits offer an imperfect representation of the technocratic work being accomplished by different institutional levels throughout the year, in part because the leaders have tended to reflect the crisis of the moment, whether Greece and the Eurozone, Syria, or whatever issue may arise in the future. But the technical work should catch our attention and shouldn’t become disconnected from the political process; experts and the media should acknowledge, critically assess, and report on the progress that is being made below the waterline of the iceberg that is today’s global summitry (Alexandroff 2011). Longer-term endeavors such as the Global Summitry Project can hopefully contribute to that effort.